Pessimism reigns: confidence at GFC-lows

Business confidence has fallen to the lowest level since the global financial crisis, as business conditions remained weak with little sign of a pre-Christmas revival, the National Australia Bank's monthly business survey shows.

A strong Australian dollar, fiscal tightening and very weak confidence was expected to weigh on near-term activity and allow for a further Reserve Bank rate cut possibly in May 2013, the November NAB survey said.

The monthly business condition index remained at minus 5, while business confidence fell to minus 9 from minus 1 in October.

"Pessimism is the word this month, with business confidence the weakest since April 2009. Confidence did not rise in any sector and fell especially hard in manufacturing," NAB said.

"Also providing little support for a near-term rebound is the weakness in indicators of future demand. ... Overall, the survey implies a significant slowing in underlying demand and GDP growth in the December quarter, both easing to around 2¼ per cent – clearly below trend."

The slump in confidence partly reflected fears about the weak levels of activity in the economy and concern about the future of the mining sector, the survey found.

"Businesses still appear reluctant to borrow despite a run of rate cuts over the past year. Confidence is now 15 points below the series long-run average level of six points."

Conditions weaken in mining states

Business conditions were significantly weakened in Western Australia, South Australia and Queensland in November - all states that are the most exposed to mining.

Conditions in NSW and Victoria improved slightly in contrast. But conditions still remained negative in all the states, NAB said.

The split in business conditions in different sectors, which had become quite pronounced since late 2009, was a sign that the Australian economy was undergoing structural changes towards mining and service-based industries, and away from traditional manufacturing and discretionary retailing, the survey stated.

But the slowdown in the mining sector was expected to hold back the structural shift.

Roy Morgan more optimistic

Meanwhile, Roy Morgan’s business confidence survey - also published today - was more positive, showing a lift from 114.0 to 116.8 in November, just off the highest level in 10 months.

Roy Morgan interpreted the results of its survey as a positive sign for growth, but cautioned that small business wasn’t as optimistic as larger firms.

“While there is some optimism coming back into the market, micro businesses (turnover of less than $1 million) are still struggling and are a lot less confident than their larger counterparts,’’ Roy Morgan noted. ‘‘With around 90 per cent of businesses classified as micro, this remains a concern.’’

The mixed survey results caused some confusion.

‘‘On the one hand we have a survey suggesting business confidence is back at the GFC levels, and another survey suggests that confidence is not far off the best levels in a year,’’ CommSec chief economist Craig James said. ‘‘The $64 million question is whether the NAB survey is accurately describing conditions across Australia.’’

While the Roy Morgan business survey covers 2800 firms, rather than just 600 like NAB, a problem for analysts is that few would have the $18,500 necessary to review the results of the Roy Morgan survey over a 12-month period, Mr James said.

‘‘The Roy Morgan survey seems to better line up with macroeconomic indicators and consumer confidence readings, but it has been in operation for only 2½ years, while NAB’s goes back to 1997,’’ he said. ‘‘Simply, the Reserve Bank will need more information before deciding on another rate cut. And the February meeting is some time away.’’

Global gorwth sluggish

Global growth was forecast to remain sluggish next year, despite expectations that the US fiscal cliff crisis would be resolved and the turmoil in the eurozone reduced, NAB said.

The Australian economy was expected to further soften in the fourth quarter, as emerging economies drive global expansion alongside weakness in the eurozone and Japan, and moderate growth in the US.

"With the approaching peak in the resource investment boom, a rejuvenation in growth in the medium term will require the non-resource sector to strengthen during the transition to the exports phase of the mining boom."